Monday, November 14, 2011

Chart of the Day: Structural Shift in U.S. Economy

I have featured charts similar to the one above that displays real GDP and civilian employment over the last ten years. More than any single chart, I think this one really helps to accurately describe the current state of the U.S. economy:

1. Measured by real output (GDP), the U.S. economy has made a complete recovery from the 2007-2009 recession now that real output in Q3 was higher than the 2007 Q4 level when the recession started.

2. While real output has completely recovered to above pre-recession levels, U.S. employment at 139.6 million is still 6.6 million jobs (and 4.5%) below the 2007 peak of 146.2 million, and that translates into the ongoing "jobless recovery."

3. The recovery of real output to historical highs with 4.5% fewer employees has also translated into record-level corporate profits, which are now almost 40% above pre-recession levels.

4. The recovery of both output and profits to above 2007 levels with 6.6 million fewer workers could explain the sluggish job growth that will probably continue for several more years. If companies can produce more output now than in 2007 with fewer workers and record profits, where's the incentive to hire more workers?

The Great Recession stimulated huge productivity and efficiency gains as companies shed marginal workers and learned how to do "more with less (fewer workers)." The surge in productivity over the last few years may be unprecedented in recent history and may be responsible for a "structural shift" in the U.S. economy that will have long-lasting effects, e.g. an extended period of time with a jobless rate above 7%.

132 Comments:

I agree with everything up to your conclusion, where you wrongly extrapolate this trend into the future. According to your own stats, two million of the six million jobs lost during this recession were manufacturing jobs. Those jobs are never coming back, in fact, more will be lost. No doubt construction was a big part of the job losses, that market will take a while to recover also, given the inventory overhand we already have. But we are on the verge of an information boom, there's a lot of pent-up activity there. When that info boom hits, the jobs numbers will start rocketing up again, but it is difficult to say when it will take off. I've noted many times that micropayments are the critical ingredient, but considering nobody in tech is really pursuing that solution right now, the deep-seated stupidity and ignorance of those in tech will keep the information boom at bay. That's as it should be, as we get the growth we deserve and clearly we don't deserve it yet.

The 6.6 million missing jobs represents a number of factors, but two opposing forces stand out.

On the one hand, a certain percentage of employment in any healthy firm must be dedicated to process and product improvement and innovation. To that extent, numbers can be reduced in a recession without seriously cutting into the bone of the organization.

At the same time, that 'slack' generates future investment from which new jobs are created. Firms are therefore running on existing annuities without looking for new opportunity.

On the other hand, all organizations have a tendency to over-build. In everything. We over-think, over-analyze and become too complicated. Many of our products display that tendency, from the 4 wheel drive SUV with 6 airbags to 120 cable channels that no one watches even though we insist on purchasing them.

Walmart is in some ways a testament that people will buy simpler, less frilly products. And most new competition in any market enters from the bottom.

So both competition and recessions force renewal and re-simplification in search for new combinations of value.

Unfortunately regulation and government bureaucracy does not suffer from those forces; there is never a clear and significant incentive to simplification and renewal.

On the contrary, over-building is generally rewarded. There is not even a direct association between new cost and tax revenue, and since government runs on a pyramid tax scheme as opposed to investment, debt is always the answer.

Well, can we finally agree that the debate over structural change in the economy is true? It was obvious throughout the recession.

Framing the debate also frames the solution to it.

By using easy credit to employ workers in jobs that required fewer skills, and by failing to reform education so that workers were competitive on the world market, and by failing to reform tax policy to encourage industry to invest in high risk capital equpment, we have both created a new generation of people who believe that they can live beyond their competitive abilities, and another genration that is effectively unskilled.The educated classes move on. They are competitive. The lower classes cannot compete against their peers.Its not just that they're more expensive. THey're unskilled. And so yes, the problem is structural and the data, as you've shown, proves it.

If companies can produce more output now than in 2007 with fewer workers and record profits, where's the incentive to hire more workers?

In regulation that requires the prioritization of US citizens over all foreign workers.

Competitiveness is no excuse for US citizens to bow to world pressure. The world bows to the United States, not the other way around.

I wonder what role the payment of extended unemployment insurance has had on this phenomenon?

Nothing unless you want to use the answer to divine political leaning.

Businesses use the lack of that to force bad deals on people that don't really have any good choices. Extended UI counters that, where employers have to respond in an upward wage direction for a given (fixed) skillset.

So you're saying that there is a split that is focused on education? The problem is that we want to bury the people without the right level of education instead of having businesses adapt in favor of these "unskilled" untouchables.

There is nothing wrong with stacking the deck in our nation's favor, giving the least-skilled US citizen a better opportunity - by defining them legally as being less expensive and more skilled by default.

So, the real problem is Bush and Obama didn't fight a big war so they could put those 6 million people in the army. At least they printed trillions of dollars to spend on bailouts, political favors and crony capitalist schemes and got the GDP numbers to go up.

many, many people never think about how the economy generates jobs nor how much education they need - they have always assumed that the education they (and their kids) received was "enough" and there would always be jobs for them in the economy as long as they were willing to be reliable hard workers.

geoih also has an exceptionally important point.

The DOD budget has doubled since 2000 and the largest part of that is for people - "volunteer" soldiers and civilian support personnel.

When these two wars wind down, these folks are coming home to that structurally-changed job situation and many will go from employed with health care benefits to unemployed with little prospect of the type of job in years past they used to be able to count on.

They're better off than many though because govt jobs and postal jobs give preference to veterans.

30% of our kids graduate with a "proficient" education no days and yet many are opposed to national curriculums, testing and public education.

We are at an important crossroads and whether or not we are up to the challenge ....is in doubt.

I offer another explanation:On the one hand, you have companies that would potentially hire workers but who refrain from doing it because of legal incertitude – e.g. US employers anticipating a “European-like” workplace regulation (I’m French… know what I’m talking about…).On the other hand, the high level of unemployment means that workers accept to work much harder – they basically want to keep their job. That’s basically what all French people have been doing for all of their professional lives.The result is employers ask their employees to work harder and workers are likely to agree.If America avoids committing the same mistakes we made decades ago (highly regulated labor market, extensive welfare state etc…), employers will start hiring, competition in the labor market will shift back in workers’ favor and you’re back on your feet.

"The DOD budget has doubled since 2000 and the largest part of that is for people - "volunteer" soldiers and civilian support personnel." -- Larry G

More fact free commenting from "Larry G".

"During the past twenty fiscal years, defense budgets have been somewhat smaller than the current one. But even so, the claim made by the SF Chronicle and others that "core defense spending" has doubled since FY2001 is not true. The FY2001 DOD budget amounted to $291.1 billion in 2000 dollars, i.e. $368.82 billion in 2010's money using the DOL's inflation calculator. To double in nominal dollars, it would have to reach $582.2 billion; to double in real dollars, it would have to grow to $737.64 billion. But it hasn't reached either level -- it amounts to only $534 billion, and for FY2011, the president has proposed only $549 billion. Even total military spending has not reached $737.64 billion. So the claim that defense spending has doubled since FY2001 is factually incorrect. Defense spending ($534 billion) is much smaller than federal welfare spending ($888 billion in FY2010, including the Medicaid program, or $638 billion without Medicaid), health care spending ($859 billion, again including Medicaid), and the Social Security program ($696 billion). But even if you count discretionary items, you will see that federal welfare spending (even excluding Medicaid) is much bigger than defense spending." -- The American Thinker

Funny, we never here leftists lamenting the increase in the welfare roles.

"Democrats on the supercommittee have proposed that the savings from the end of the wars in Iraq and Afghanistan be used to pay for a new stimulus package, according to a summary of the $2.3 trillion plan obtained by The Hill. The latest offer from Democrats on the deficit panel, made Monday night to their Republican counterparts, would use some of the war savings to help pay for spending on infrastructure. The budget savings from ending the wars are estimated to total around $1 trillion over a decade, according to an estimate in July from the Congressional Budget Office." -- The Hill

Hmmm, 1 trillion over a decade. That means that a decade of future military action in both Iraq and Afghanistan would have cost less than Obama's first failed "stimulus" program. Remind us all again, what exactly did that fisrt "stimulus" accomplish? Yeah, it's time to double down.

Output per capital is below its previous peak because so many are not working. The productivity of those working is high enough that we do not need the rest working, to produce the same output.

The only way the can be employed is in doing things we don't need done, or which are optional luxuries, like servants.

I don't see them employed in some information boom because there is a limit to how much information we need, much of it is drivel, and the valuable information travels so fast that its useful sales life span is short.

You describe GDP as "real output". But, is it? GDP is based on spending. Its problem is that it can't really tell us where the money for that spending comes from.

Did it come from production? Did, maybe, some of it come from a draw-down in capital? And, what percentage of that spending (in particular, the government part) came from the Fed creating it out of the proverbial thin air?

GDP is a terrible measure of the economy and your chart should cause more people to ponder that.

>> The only way the can be employed is in doing things we don't need done, or which are optional luxuries, like servants.

Yep. Utterly and completely brain damaged, as noted in another thread.

It's not a fixed pie you halfwit moron.

The solution is for the number and type of different jobs to increase, and no, they don't have to be "mcjobs" unless the people in question are unable to accomplish any more valuable task, PLUS the people currently doing "mcjobs" are ALSO unable to accomplish any more valuable task.

Additional services (no, that's not the same as "servants", geeenyus. "Servants" implies a menial, non-intelligent sort of labor) are one of the more obvious propositions.

One obvious example of "services" is the notion of craftsmen. There is a lot of cheap dreck available out there. Learning how to produce something that involves skill and practice is one clear way to leverage a hobby into a job, while you're working at a less skilled task to build up skill and reputation.

"Value added" is a similar proposition -- take something that it's hard to NOT buy as "cheap dreck" and figure out if there's a demand for better quality and fulfill it by taking the cheap dreck and adding things to it that make it much more saleable. A trivial idea along these lines would be to figure out a way to alter a toaster bought at Wal Mart into an artistic novelty that people would want to spend an extra $10 or $20 for, while not spending an hour or two doing it (government regulation, of course, would likely poo-poo this idea, but that's just another thing wrong with the current situation)

Measured by real output (GDP), the U.S. economy has made a complete recovery from the 2007-2009 recession now that real output in Q3 was higher than the 2007 Q4 level when the recession started.

I don't see how anyone can claim this is "complete recovery by GDP". Complete recovery by GDP would be return to trend line.

Trend line growth has been over 3% for decades. GDP now "recovered" to 2007 levels is the same as "no GDP growth since 2007 -- none in four years!"

How good is *that*??? It's 12 points of GDP below trend.

Assume no growth in GDP from 2007 until today. Population growth since then is over 10 million. How much would you expect unemployment to have increased with population growth of 3.6% but zero GDP growth?

On the one hand, you have companies that would potentially hire workers but who refrain from doing it because of legal incertitude – e.g. US employers anticipating a “European-like” workplace regulation (I’m French… know what I’m talking about…).

The more reason to look at the European model, and find ways to keep the regulation while closing the means to circumvent them or pervert their intent.

That can be done by making the costs & liabilities equal to or greater than permanent employees. Classifications of less-than-full-time-work can be defined as already-prohibited category with stiff punishments, along with an obligation to not raise requirements to meet the regulations.

On the other hand, the high level of unemployment means that workers accept to work much harder – they basically want to keep their job. That’s basically what all French people have been doing for all of their professional lives.

The more reason to find ways to take pressure off the worker and put it on the employer.

If America avoids committing the same mistakes we made decades ago (highly regulated labor market, extensive welfare state etc…), employers will start hiring, competition in the labor market will shift back in workers’ favor and you’re back on your feet.

Bollocks. Handing the employer the keys to the kingdom is exact thing not to do. The employer side has proven their contempt, and cannot be trusted.

If you want to scale down the proverbial welfare state, it must be with solid & weasel-word free promises. These promises would be of increased opportunity through increased direct/FT hiring for all legal citizens.

If there's anything to learn from Europe, it would be to learn how to thwart employers' disregard for the law, and block the use of agency & casual labor as a benefits dodge.

To stimulate the economy, which it did. The assumption was that this would also create jobs, which turned out to be wrong, but as far as the economy goes, this data suggests the stimulus was a success.

Yep. Utterly and completely brain damaged, as noted in another thread.

It's not a fixed pie you halfwit moron.

I understand that. It is not a fixed pie. Now look at the chart. The pie got bigger and still no jobs.

If you do not need those people to get a bigger output, what will you do with them?

a) Pay them to do nothingb) Create some menial unnneeded task that could be better done some other way, and waste money paying them to do that.c) Have the job creators create real jobs thet get them a bigger, instead of a smaller, piece of the increasing pie.d) Extermination.

If it was Bush - he would have been CHEERED for getting control of Iraq and at the same time cut unemployment ....

Nobody is going to control Iraq. And government can't cut unemployment until it gets rid of a huge chunk of all federal workers, repeals most of the stupid regulations, and stops taxing and spending. What are the odds of that happening without a collapse coming first?

"To stimulate the economy, which it did. The assumption was that this would also create jobs, which turned out to be wrong, but as far as the economy goes, this data suggests the stimulus was a success."

What, exactly, does "stimulus" mean to you? The idea was to "prime the pump", by generating meaningless economic activity, that would trick producers into thinking there was substantial demand, so that they would ramp up production and hire people, which would create actual demand, and cause the economy to roar back to life.

The trouble is, no one was fooled by the pump priming, and realized that there would only be economic activity as long as the stimulus money kept flowing. When it stopped, so did the activity. We are no better off than before, except now our grandchildren will be poorer than they would have preferred.

What do you consider successful about it?

The mistaken notion that once a mythical beast called "aggregate demand" can be found, prosperity will follow like night after day, has kept the economy from recovering.

"it's proven that you can lower unemployment by hiring more soldiers regardless of "regulations".

That is not employment. That is a waste of resources. And wasted is not productive. This is why wars have rationing and all kinds of shortages."

it's employment no different than someone spending money on a big screen TV or a lottery ticket or porn or any other "non-productive" endeavor.

the whole idea of "regulations" is a canard to start with.

"Not if you have to comply with them. If they make it harder to stay in business you simply close up shop and look for an easier way to deploy your capital."

if everyone in that same business have to comply with them then it actually generates MORE employment and yes.. people then have to pay for the benefits that accrue (like not getting sick and dying from pollution) instead of spending their money on jewelry or race cars.

regulations actually require INCREASES in employees to comply with them but regulations reduce profits that investors want.

Without profits companies don't hire dumdum. They move their operations to places where the regulatory burden is not as high.

it's employment no different than someone spending money on a big screen TV or a lottery ticket or porn or any other "non-productive" endeavor.

Spending money is not employment. Hiring someone to make a TV is employment. It is productive because people want to purchase TVs. And porn is far more productive than sending people to fight wars and destroy capital. The producers offer a product and consumers willingly buy it.

if everyone in that same business have to comply with them then it actually generates MORE employment and yes.. people then have to pay for the benefits that accrue (like not getting sick and dying from pollution) instead of spending their money on jewelry or race cars.

But not everyone has to comply with the same regulations. Companies in China do not have to fill out forms showing that they have the 'right' number of women or minorities in management. They do not have to do 'green audits' that count how many CFL bulbs are used or how much water their toilet tanks hold. Because of their lower regulatory compliance costs they can offer the same quality product for less money and consumers have shown that they love lower priced products.

" regulations actually require INCREASES in employees to comply with them but regulations reduce profits that investors want.

Without profits companies don't hire dumdum. They move their operations to places where the regulatory burden is not as high."

if everyone in the industry has to comply - then that cost is added to the cost of doing business and passed on to the customers.

should a pest control company be regulated to not use deadly poisons that can kill kids or pets or should we not regulate?

the canard that any/all regulation is bad is simplistic sound bite conceptually but in reality most regulation comes about because someone got harmed and the person who did it evades financial responsibility.

I'm not in favor of any/all regulation and I would agree that we have too much of it on some things... some of it makes little sense.. but much of it comes about because people who have been harmed have asked for it and we have an elected govt that requires concurrence legislatively and approval by the President and acceptance by SCOTUS.

the worst countries in the world for living and for investment are those who have little or no regulations to protect people or investors.

"Spending money is not employment. Hiring someone to make a TV is employment. It is productive because people want to purchase TVs. And porn is far more productive than sending people to fight wars and destroy capital. The producers offer a product and consumers willingly buy it."

spending money on a product or service that is produced is "productive". It's a value judgment as to the usefulness of the product or service whether it be porn, milk or a weapon system.

all of them provide employment.

"if everyone in that same business have to comply with them then it actually generates MORE employment and yes.. people then have to pay for the benefits that accrue (like not getting sick and dying from pollution) instead of spending their money on jewelry or race cars.

But not everyone has to comply with the same regulations."

they do in this country ...and other countries...

"Companies in China do not have to fill out forms showing that they have the 'right' number of women or minorities in management."

they also do not have to not dump dioxin in their rivers, so what?

"They do not have to do 'green audits' that count how many CFL bulbs are used or how much water their toilet tanks hold. Because of their lower regulatory compliance costs they can offer the same quality product for less money and consumers have shown that they love lower priced products."

everyone loves lower priced products but they can come at a cost.

"Your ignorance of economics is astounding. Try learning something."

spare me your condescending arrogance and stupidity.

you're a fool.. in many, many ways but the most is you think highly of yourself and really have no good reason to do so.

" LOL Yes, making consumers pay more is always a good idea. It is the road to prosperity."

indeed - it's the explicit strategy of just amount every company in business... called "profits" to benefit "investors".

I'm sure you have a favorite cable company or cell phone provider that practices this concept on you also, right?

but it's also quite likely that you fork over money for fire service and potable water because of "regulations".

the fire code is a good example of "regulation" that is, in fact, advocated for by businesses - fire insurance companies themselves who require "compliance" as a condition of agreeing to sell you insurance - so they charge you twice - once to build according to their rules and industry standards and again to provide you with insurance.

using your logic - it is wrong for the insurance company to "regulate" you and tell you what to build and how to build it and it certainly does add to your costs - and, not coincidentally all that "stuff" that the insurance company requires you to put in your house - that adds to your costs - also provides jobs.

"indeed. it's whatever society determines is a "need" that they are willing to pay taxes for.

some folks consider things like regulations for food service to be "filling in holes" while others want those regs to weed out the really bad actors if nothing else."

As usual, you can't seem to hold onto the original idea for very long.

You wrote:

"regulations actually require INCREASES in employees to comply with them but regulations reduce profits that investors want."

Increasing the cost of something by requiring more people be employed to produce it, without adding anything to the product that consumers value, makes us all poorer. This is true whether the additional employment is required to comply with regulations, or to dig holes and fill them in.

" Increasing the cost of something by requiring more people be employed to produce it, without adding anything to the product that consumers value, makes us all poorer. This is true whether the additional employment is required to comply with regulations, or to dig holes and fill them in. "

making a product or service safer and less harmful is "value added".

for example - not having lead in paint is in most folks minds worth the extra cost of regulation.

you say "learn economics".

I think you are "lacking" in some areas because of your dogma and single-mined pursuit of ideological concepts without applying practical realities.

you have those failings and then on top of them arrogance...and condescension to camouflage your idiocy on these things.

"how about you explain the DIFFERENCE between liquidity preference and time preference "

Why sure, Larry, anything to help you understand economics better:

The liquidity preference theory of interest rates, first developed by Keynes, is a measure of the demand for money, and is the rate of interest necessary to overcome a person's preference for holding cash.

Time preference theory, on the other hand, proposes that interest rates reflect the amount necessary to overcome a person's preference for immediate consumption, as opposed to consumption at a later time.

In his book America's Great Depression, Rothbard discusses the failure of the liquidity preference theory to account for the different effects of foregone consumption and foregone investment in satisfying a person's preference for cash.

on the liquidity preference, what does someone do with their money if they don't want to earn interest? where does that money get put? and what happens to that money - is it sequestered from being used as investment?

do they convert it to something of durable value but not as "liquid"?

for time preference - what are the external forces that would convince someone to spend their money rather than save it?

if someone is unemployed - they have no money to save they're going to spend on consumption right away - right?

isn't that the idea behind stimulus like "make work pay" and reducing the payroll tax to put money net in paychecks ?

"how about you read the report and tell me what they did not address that you think they should have...in terms of the cost of doing business and how you would have done it different and better?"

The report is 212 pages, Larry, is there some specific part you can recommend? I've seen the chart you like, and I see that the report credits drastically *reducing* regulations as a major contributor to ease of doing business.

You, on the other hand, seem to think that increasing the regulatory burden on businesses is helpful as it increases employment.

Friedrich Bastiat had a novel idea that the number of jobs could be increased almost without limit if workers were required to work with their right hands tied behind their backs. That's probably even more effective than adding any number of other regulations, or digging and refilling holes.

I think it is prosperity you want, not jobs.

I'll read the entire World Bank report if you will agree to read Rothbard's "Ethics of Liberty".

"The report is 212 pages, Larry, is there some specific part you can recommend? I've seen the chart you like, and I see that the report credits drastically *reducing* regulations as a major contributor to ease of doing business. "

it's more than that... go read it

it encompasses many costs of doing business and compares them across nations..... including regulations.

"You, on the other hand, seem to think that increasing the regulatory burden on businesses is helpful as it increases employment."

nope. I merely have pointed out that contrary to the oft-repeated mantra that regulations are "job killing" - they do the opposite.

"Friedrich Bastiat had a novel idea that the number of jobs could be increased almost without limit if workers were required to work with their right hands tied behind their backs. That's probably even more effective than adding any number of other regulations, or digging and refilling holes."

that's blather...

"I think it is prosperity you want, not jobs."

you need to better define what it is or is not.

for instance putting up buildings without requiring building code is not "prosperity" ......

"I'll read the entire World Bank report if you will agree to read Rothbard's "Ethics of Liberty"."

your tome is an advocacy for a particular viewpoint .

I am much more interested in fact-based evidence and comparisons and contrasts - as well as apparent contradictions - on ALL the theories.

The report is 212 pages, Larry, is there some specific part you can recommend? I've seen the chart you like, and I see that the report credits drastically *reducing* regulations as a major contributor to ease of doing business.

You, on the other hand, seem to think that increasing the regulatory burden on businesses is helpful as it increases employment.

Friedrich Bastiat had a novel idea that the number of jobs could be increased almost without limit if workers were required to work with their right hands tied behind their backs. That's probably even more effective than adding any number of other regulations, or digging and refilling holes.

I think it is prosperity you want, not jobs.

"Ethics of Liberty" advocates from what I can tell - a theory of which there is no analog in the real world... of over 200+ countries.

I do not subscribe to any ideology as a practical approach unless there are some real world examples of it especially in this country which if you read that world bank report is NOT the over-regulated, bad-for-business country that is portrayed.... it's BETTER than MANY other countries INCLUDING Austria.

I want to see Center for Libertarian Studies and the Ludwig von Mises Institute do what the World Bank did and that is to rate the countries that best meet THEIR definition of business.....

Even the Heritage folks do that with their comparative report on Index of Economic Freedom - though it totally ignores regulation as one of the metrics which is odd given their view of regulation.

"on the liquidity preference, what does someone do with their money if they don't want to earn interest? where does that money get put? and what happens to that money - is it sequestered from being used as investment?"

They hold it in cash, Larry, that's the definition of "liquidity". I don't need to explain that to you, do I?

"do they convert it to something of durable value but not as "liquid"?"

No, Larry, liquid = liquid.

"for time preference - what are the external forces that would convince someone to spend their money rather than save it?"

You would have to ask them, Larry, but I could suggest that government interference in the market by holding interest rates artificially low, rather than allowing the market to set the rate, would do it.

"if someone is unemployed - they have no money to save they're going to spend on consumption right away - right?"

I don't know, Larry, we could only speculate. Unlike you, I don't pretend to speak for other people.

"isn't that the idea behind stimulus like "make work pay" and reducing the payroll tax to put money net in paychecks ?"

Reducing taxes is always a good thing, as it leaves more in the hands of producers, and less in the hands of government.

The way to ensure tax reductions are meaningful, however, is to permanently reduce tax rates, and reduce government spending and borrowing, not just provide one time refunds and other gimmicks that don't change anyone's behavior, as they aren't fooled by such tricks.

Putting money in the hands of consumers only creates temporary economic activity unless they also produce more. In other words, if the additional money is actually earned.

"on the liquidity preference, what does someone do with their money if they don't want to earn interest? where does that money get put? and what happens to that money - is it sequestered from being used as investment?"

They hold it in cash, Larry, that's the definition of "liquidity". I don't need to explain that to you, do I?

not in a bank account?

"do they convert it to something of durable value but not as "liquid"?"

No, Larry, liquid = liquid.

cash in the mattress or cookie jar?

"for time preference - what are the external forces that would convince someone to spend their money rather than save it?"

You would have to ask them, Larry, but I could suggest that government interference in the market by holding interest rates artificially low, rather than allowing the market to set the rate, would do it.

don't you need to understand the basis of this if you are going to have an opinion in favor of the time preference approach?

are you suggesting that if interest rates are too low that people will spend the money instead of holding on to it?

"if someone is unemployed - they have no money to save they're going to spend on consumption right away - right?"

I don't know, Larry, we could only speculate. Unlike you, I don't pretend to speak for other people.

I'm not speaking for anyone.

I'm trying to better understand the competing theories and why you subscribe to some rather than others.

"isn't that the idea behind stimulus like "make work pay" and reducing the payroll tax to put money net in paychecks ?"

Reducing taxes is always a good thing, as it leaves more in the hands of producers, and less in the hands of government.

is reducing taxes - "stimulus"?

"The way to ensure tax reductions are meaningful, however, is to permanently reduce tax rates, and reduce government spending and borrowing, not just provide one time refunds and other gimmicks that don't change anyone's behavior, as they aren't fooled by such tricks."

cutting taxes when you already have a 1.5 trillion annual deficit will make things better?

"Putting money in the hands of consumers only creates temporary economic activity unless they also produce more. In other words, if the additional money is actually earned."

do you believe that for the mission of DOD or NASA or DARPA?

if you view the govt as providing goods and services that are deemed "needed" why is the purchase of those goods and services any different than purchasing porn or lottery tickets?

"nope. I merely have pointed out that contrary to the oft-repeated mantra that regulations are "job killing" - they do the opposite."

I guess you didn't understand what that meant when you read it.

"that's blather..."

Anything you don't understand is blather.

"I think it is prosperity you want, not jobs."

"you need to better define what it is or is not."

Here's how your favorite reference defines it:

"Prosperity is the state of flourishing, thriving, success, or good fortune. Prosperity often encompasses wealth but also includes others factors which are independent of wealth to varying degrees, such as happiness and health."

If jobs is all it takes to be prosperous, then Bastiat is right.

"your tome is an advocacy for a particular viewpoint"

Is that a "no"? Well then, forget it. I won't read the World Bank report.

Of course they happen. They happen e every time the government gets in the way and won't let the market liquidate lousy investments. Just take a look at the Great Depression, post-2001 America, or Japan over the last 30 years as examples.

indeed. it's whatever society determines is a "need" that they are willing to pay taxes for.

Since when did 'society' decide to bail out Wall Street? Or to save GM? And since when does 'society' pay taxes? The last time I looked it was individuals to were taxed and very few of them actually paid much in the way of income taxes.

now, of course if your view is that any/all regulations are bad no matter what - then ranking countries is an exercise in futility as govt itself is probably also viewed as bad.

My view is that the World Bank is hardly an unbiased body. It is dominated by OECD lifetime bureaucrats and ignores some obvious issues like tax code complexity. Having the World Bank be an arbitrator of regulatory effectiveness is a lot like having Saudi Arabia be the arbitrator of the effectiveness of protecting women's rights.

indeed - it's the explicit strategy of just amount every company in business... called "profits" to benefit "investors".

Companies have competitors to keep prices low. A tax will rise prices because there is no competitor to the government other than a small black market.

I'm sure you have a favorite cable company or cell phone provider that practices this concept on you also, right?

I sort of suspected you weren't clear on this. Here is Wiki's definition.

"don't you need to understand the basis of this if you are going to have an opinion in favor of the time preference approach?"

You asked about external forces that might affect time preference, and I gave you one.

If you studied the subject, you would understand that time preference more completely explains interest rates than liquidity preference, as I explained earlier. It's certainly understandable if you don't understand time preference, as you have clearly demonstrated that you don't understand net present value, which is sort of fundamental to interest rates.

Keynes was inconsistent and apparently confused on the subject of interest, savings, and investment, sort of like you are. This lead him to such errors as the liquidity trap and the paradox of thrift.

Time preference is an individual, subjective value. Not everyone is the same. Maybe that's part of your problem: an inability to understand that each individual is different.

"are you suggesting that if interest rates are too low that people will spend the money instead of holding on to it?"

I'm suggesting that if interest rates are held lower than the market would set them at, people will be inclined to spend rather than save, as there is little incentive to defer consumption.

but it's also quite likely that you fork over money for fire service and potable water because of "regulations".

Not at all. I fork over money because I am forced to pay for the services offered by the municipality. I would rather be able to choose the provider. In the case of fire protection the private sector could deliver the same quality for around a third of the price.

the fire code is a good example of "regulation" that is, in fact, advocated for by businesses - fire insurance companies themselves who require "compliance" as a condition of agreeing to sell you insurance - so they charge you twice - once to build according to their rules and industry standards and again to provide you with insurance.

Insurance companies are more than willing to set up their own standards and would do so if the government were not involved. Given the fact that it is their money that is the risk and that they have the best and smartest people working for them it would certainly be far more effective than a government run system.

using your logic - it is wrong for the insurance company to "regulate" you and tell you what to build and how to build it and it certainly does add to your costs - and, not coincidentally all that "stuff" that the insurance company requires you to put in your house - that adds to your costs - also provides jobs.

No. Insurance companies have competitors. If a consumer does not like the terms demanded by one insurer s/he can buy coverage from another. There is no 'best' standard for all people and companies at all times. That is why it is better to choose one depending on needs and ability to pay.

No it isn't. I can make a car a lot safer and less harmful by making it much heavier and limiting its top speed to 20km per hour. That would not make it more valuable to anyone but the individual who thinks that is a good idea. All actions require tradeoffs and risks. It is time you learned that.

"nope. I merely have pointed out that contrary to the oft-repeated mantra that regulations are "job killing" - they do the opposite."

I guess you didn't understand what that meant when you read it.

perhaps you can explain.....

"that's blather..."

Anything you don't understand is blather.

nope. I know blather when I read it.

"I think it is prosperity you want, not jobs."

"you need to better define what it is or is not."

Here's how your favorite reference defines it:

"Prosperity is the state of flourishing, thriving, success, or good fortune. Prosperity often encompasses wealth but also includes others factors which are independent of wealth to varying degrees, such as happiness and health."

bad/unsafe/dangerous/deadly drugs, food, buildings, and no rule of law are not "prosperity".

"If jobs is all it takes to be prosperous, then Bastiat is right."

??

"your tome is an advocacy for a particular viewpoint"

Is that a "no"? Well then, forget it. I won't read the World Bank report.

I have no problem reading evidence-based material that attempts to not take a biased view.

Organizations who have obvious biases are not presenting objective information but rather an argument for their position and they ignore/repress data and information that contradicts their position.

honest narratives acknowledge the conflicts and compare and contrast the differences.

I read tomes like you reference and will this one but it's tedious and unproductive in terms of a larger understanding of how things work because these folks are not interested in that to start with.

I put stock in any group not only espousing it's view but giving real world examples of it and even developing rank lists of the countries that best meet their criteria.

The report is 212 pages, Larry, is there some specific part you can recommend? I've seen the chart you like, and I see that the report credits drastically *reducing* regulations as a major contributor to ease of doing business.

You, on the other hand, seem to think that increasing the regulatory burden on businesses is helpful as it increases employment.

You don't really expect him to read the references that he gives, do you?

But here you are Larry. A few excerpts to illustrate that you are a bigger idiot than I thought.

"In the United Kingdom in 2005–10 a program reduced the burden of regulatory compliance on businesses by 25% according to the government."...Page 21

"Korea also undertook efforts to lighten the administrative burden of taxes. In 1997 it had already implemented a system allowing tax- payers to file taxes electronically. In 2002 it launched a new one, the Hometax system. In 2010, thanks to increased use of the new system, the time to comply with tax obligations was reduced by 14% as measured by Doing Business."...Page 26

"Sweden undertook a systematic review of all regulations in the 1980s. Any unjustified requirements were cut in a “guillotine” initiative. (Mexico took a similar approach in the 1990s.) In Korea the Presidential Council on National Competitiveness, created in 2008, identified regulatory reform as 1 of 4 pillars to improve the economy’s competitiveness, along with public sector innovation, investment promotion, and legal and institutional advancement. Reviewing Korea’s business regulations, the council found that 15% had not been revised since 1998. The council applied sunset clauses to more than 600 regulations and 3,500 administrative rules (see the case study on Korea)."...page 5

You see that Larry. Reducing regulations and eliminating bureaucracy was seen as a good thing. That is the opposite of what are arguing. And that comes from a very statist organization that is much more likely to support your socialists views than Ron's desire for free and unregulated markets. Even the communists and national socialists have figured out that the regulatory burdens are bad for the producers on which they prey.

Of course they happen. They happen e every time the government gets in the way and won't let the market liquidate lousy investments. Just take a look at the Great Depression, post-2001 America, or Japan over the last 30 years as examples.

can you give examples of countries that don't do this - or do much less of it ?

indeed. it's whatever society determines is a "need" that they are willing to pay taxes for.

"Since when did 'society' decide to bail out Wall Street? Or to save GM? And since when does 'society' pay taxes? The last time I looked it was individuals to were taxed and very few of them actually paid much in the way of income taxes. "

you do have elections at the Federal, State and local level and people do decide how much they want to pay in taxes and/or the level of govt they want (or not).

the vast, vast majority of money for education, for example, comes from state and local taxes, not Federal taxes.

Fully 1/2 of the Fed budget is for National Defense...

and we have a national policy of not taxing people with kids if their incomes are nominal.

not likely. it's going to be in a financial institution 99% of the time unless they buy gold or something that is liquid but not in circulation.

"cash in the mattress or cookie jar?"

Could be.

I sort of suspected you weren't clear on this. Here is Wiki's definition.

???

I'm trying to understand YOUR VIEW here and I will fully admit that I'm ignorant on a wide variety of subjects - but then we all are.. including you... despite your beliefs otherwise.

"don't you need to understand the basis of this if you are going to have an opinion in favor of the time preference approach?"

You asked about external forces that might affect time preference, and I gave you one.

I'm asking for ones that are realistic and probable....

"If you studied the subject, you would understand that time preference more completely explains interest rates than liquidity preference, as I explained earlier. It's certainly understandable if you don't understand time preference, as you have clearly demonstrated that you don't understand net present value, which is sort of fundamental to interest rates."

I don't understand it all but I'm pretty sure you don't either but you can't just be honest about it.

I'm asking you basic questions here about the differences between the two and WHY you pick one over the other - UNDERSTANDING that a lot of far more educated people in this world - do not agree with you either.

"Keynes was inconsistent and apparently confused on the subject of interest, savings, and investment, sort of like you are. This lead him to such errors as the liquidity trap and the paradox of thrift."

they're not "errors" guy. they are different views of things that have no definitive, absolute proof.

people choose which one they subscribe to and many do not subscribe to what you do.

but I want to know WHY you believe what you do anyhow.

I see conflicts and contradictions in BOTH explanations by the way.

Time preference is an individual, subjective value. Not everyone is the same. Maybe that's part of your problem: an inability to understand that each individual is different.

so why do you "believe" in something that is highly subjective without good evidence to prove it?

"are you suggesting that if interest rates are too low that people will spend the money instead of holding on to it?"

I'm suggesting that if interest rates are held lower than the market would set them at, people will be inclined to spend rather than save, as there is little incentive to defer consumption.

is that what is going on right now - people are spending rather than saving?

If that were true, wouldn't there be more demand ...more "aggregate" demand?

People will hold onto money when they are uncertain about the future.

if people do that - then doesn't that provide more money for investment thus driving down rates for borrowing - independent of govt actions?

can you have a situation where most of the world...many, many countries are uncertain about the future?

can you give examples of countries that don't do this - or do much less of it ?

Hong Kong. Singapore. That is about all I can think of. Most countries are run by economic meddlers who have a need to do something to prevent pain even though the pain is needed so that a sustainable recovery can begin.

you do have elections at the Federal, State and local level and people do decide how much they want to pay in taxes and/or the level of govt they want (or not).

It never really comes up. Most people think that they are voting for candidates who will raise the taxes of others, not themselves. That is not exactly legitimate and cannot be justified on any moral or natural rights grounds. As Auberon Herbert wrote, "Why should either two men live at the discretion of three, or three at the discretion of two. Both propositions are absurd from a reasonable point of view. If being a slave and owning a slave are both wrong relations, what different does it make whether there are a million slave owners and one slave, or one slave owner and a million slaves? Do robbery and murder cease to be what they are if done by ninety-nine percent of the population?"

an increase in prices - just takes money from one thing and directs it to another.

that, in and of itself is neither here nor there...good or evil..etc

You are avoiding the issue. Companies cannot arbitrarily raise prices and force consumers to pay more because they have competitors who are fighting for the same consumption funds. That is not true with government. It has no competition and can increase prices on everyone by using its monopoly power.

"I'm trying to understand YOUR VIEW here and I will fully admit that I'm ignorant on a wide variety of subjects - but then we all are.. including you... despite your beliefs otherwise."

What are you talking about! You asked me to define liquidity preference and time preference for you, and I did. You asked me not to share my view, and I didn't. I told you that time preference provides a complete explanation for interest rates, and liquidity preference doesn't. I'm not at all ignorant of this subject, but you certainly seem to be. How can you argue with people when you don't have the slightest clue? Learn some economics!

"I see conflicts and contradictions in BOTH explanations by the way. "

I don't see how that's possible, as you don't appear to understand either one, but I'd love to hear what you think the contradictions are.

"they're not "errors" guy. they are different views of things that have no definitive, absolute proof. "

They are indeed errors in logic. You have to be able to understand logic to use it, so I can see why you are confused.

Read The Failure of the New Economics, chapter 14 on page 162 for a thorough explanation of "liquidity preference. These are not Hazlitt's views, but is economic theory that has not been falsified. If you find a logical error, you should point it out, but there's little chance of that, as you will not likely even understand what you're reading, but give it a shot.

" I gave you a link to the wiki definition of liquidity, but you haven't read it or don't understand it. I can't help you further. ask someone to explain liquidity to you. Educating you is not my job."

you're the one who said it was bogus and I was asking you to explain why you felt that way - given the two current explanations.

I also pointed out to you that quite a few very well educated professional economists disagree with your layman view.

not to say that you are wrong but that there is not agreement among much better schooled people - either.

both explanations in my view have contradictions that need a better explanation - at least in my case.

I remind you once again that in terms of ignorance, you qualify, I qualify and everyone qualifies.

we are all ignorant - on a wide variety of subjects.

the question is what to you want to do about it.

take a position and hold it no matter what even in the face of unanswered questions and contradictions or try to continue to work through them?

I have little patience for arrogant and condescending folks who think they know more than they really do.

Someone who really knows what they are talking about do not act like a butthole when discussing issues even with their "lessers".

but overall the US ranks in the top 10 on economic freedom and not surprisingly all of the top 10 have payroll taxes (which they do rate) and all but the US provide universal health care.

agree?

If the US was ranked higher on the regulatory issue it would wind up higher on the list. And while there clearly is a great deal of state involvement in health care it is very clear that the unfunded liabilities are too high not just for the US but for all Western health care systems. The EU is about to see many of its social safety nets fall apart as public pension and public health care programs become insolvent. Of course, many in the EU already use private health care services as consumers pay doctors to avoid waiting times and get access to better care.

The Fraser Institute has its own problems with methodology but by asking businessmen to report and compare regulatory burdens in the various countries in which they operate you get a pretty good comparison. Last March I had a very long talk with a mines minister from one of West African countries. He was complaining about the problem the country had with attracting suitable investment given the quality of reserves and was wondering why. I showed him that what he was noting could have been explained by his country's slip on the Fraser survey of mining countries and took him to a mining executive who had most of his company's assets in Central Asia, Europe, North America, South America, and Australia. He pointed out why companies that were very capable avoided his country even though they loved the geology and suggested a few simple changes to the regulations that would make it much easier to attract more business. I look forward to see what the country has done when I look at the country data next spring.

are there industrialized countries that don't do what the Fed does and as a direct result don't have the artificially low interest rate problem?

All countries try to lower rates as much as possible but the bond markets do not always cooperate. The Fed has an advantage because of the reserve currency status of the USD.

If the economy is in recession and people are not spending money but instead saving it - wouldn't that also tend to provide more money that the borrowing demand?

You need to read your economics texts as Ron suggested. Without savings you can't have the capital accumulation that is the foundation of wealth creation. It is production that makes consumption possible, not the other way around.

why is it that if a large number of people disagree with your views, it's because they are all colluding in a massive lie?

Just how stupid are you really? You have no idea what the man actually said because you don't understand the words that he used. Do you know what the word falsified means in the context that he was using? No. Then try learning.

"All countries try to lower rates as much as possible but the bond markets do not always cooperate. The Fed has an advantage because of the reserve currency status of the USD."

so all countries do this, right?

If the economy is in recession and people are not spending money but instead saving it - wouldn't that also tend to provide more money that the borrowing demand?

You need to read your economics texts as Ron suggested. Without savings you can't have the capital accumulation that is the foundation of wealth creation. It is production that makes consumption possible, not the other way around.

no, I don't need to read economics .. I just need to understand how woefully ignorant you are and how you try to hide it with bluster and bluff..and condescension..

"production" comes from people who want the products that are produced.

you can "produce" out your butt until the cows come home but if no one is buying what you produce - then how would you call that "production" except in the nether world you live in ?

"why in the world would you produce something for which there is no demand for?

production comes as a result of demand."

I sort of expected your response would be something like that. Too bad. It appears we can't continue, as without that very basic understanding, there's no hope of higher level discussions having any meaning.

" I sort of expected your response would be something like that. Too bad. It appears we can't continue, as without that very basic understanding, there's no hope of higher level discussions having any meaning. "

except there is a large body of real live economists out there that also believe that...

you're not arguing with me.

you're arguing with a large group of PHDs and others who have far more knowledge and expertise than you - mr. junior economist who believes you can get "educated" by reading libertarian dogma.

Actually my friend they are already much smarter and more logical than you seem to be. They certainly can defend their positions without resorting to the hand waving that you do.

we know fully what it means when one accuses all the folks who don't agree with you as "falsifying"...

Your ignorance is showing. Try looking up the word in the dictionary.

there is no mistaking that implication...

Not if you understand the words. But you just showed that you did misunderstood the comment. Try slowing down and think about what he means by an unfalsified theory. If you need help I am sure my 13-year-old can set you straight.

Let me clarify this because you seem to have forgotten my previous arguments. There is no such thing as a 'country' doing something. There is no such thing as 'the people' doing something. All actions are taken by individuals. So when I answer your statement about 'which countries' do this or that when I answer I mean the individuals from the ruling class of those countries because countries obviously cannot act.

If the economy is in recession and people are not spending money but instead saving it - wouldn't that also tend to provide more money that the borrowing demand?

Not at all. When people change their savings rate they simply signal a change in time preference as was explained to you. They are postponing current consumption because they want to consume more later. But when more and more people save interest rates adjust and the savings provide a pool of capital that can be used to invest in the production of higher order goods, something that is necessary for wealth creation and greater future consumption.

Let me guess. Given your ignorance of the issue I would say that once again you failed to take advantage of Ron's references and you have yet to read about the subject. That means that you will remain ignorant of his arguments and will keep going back to your discredited theories over and over and over again.

no, I don't need to read economics .. I just need to understand how woefully ignorant you are and how you try to hide it with bluster and bluff..and condescension..

Someone who is ignorant of the subject is in no position to judge others because he does not even know that he does not know. That is why you do need to read. And to learn. Actually, it isn't very hard. Anyone can do it. My kids recommend How an Economy Grows and Why It Crashes as a good start.

you can "produce" out your butt until the cows come home but if no one is buying what you produce - then how would you call that "production" except in the nether world you live in ?

I take it that you have yet to learn about Say's Law. As I said above, a change in time preference leads to a change in the structure of production. As rates fall more is invested into higher order production. That does not do anything for the demand of consumer goods but it does increase demand for intermediate goods. As the mines and mills are built there is demand for steel, heavy machinery, machine tools, specialized and general labour, and all kinds of inputs. That creates employment in these sectors even as the demand for first order goods stays weak. When this increase in demand for higher order goods leads to more income stimulates lower order consumption the rates go up again and more resources are shifted towards the production of lower order goods. No intervention is required because the change in time preference determines where the resources flow.

why in the world would you produce something for which there is no demand for?

Easy. To satisfy future demand. This is why investors used to take advantage of low rates during recessions to invest in higher order production. The current problem is that the artificially low rates encouraged too much investment in capital that would not be needed. This time around economic weakness should not produce as much investments in mills, mines, plantations, etc., because much of the investment that would have taken place during the weakness was actually foolishly taking place during the period of high demand for lower order goods. As a result the projects suffered great cost overruns and produced overcapacity.

The way forward is to let the markets liquidate the bad investments so that we can start from a strong foundation. Let all the old mines and facilities with outdated equipment close down so that their more efficient competitors can thrive. Trying to keep everyone in business will not only destroy the weak companies but will also do great harm to the strong and efficient ones. Blowing more bubbles and sending the wrong signals about time preference will not help anyone.

if X number of toys are sold and you produce 3X of toys to satisfy "future demand" - you'll remove yourself from the business or selling toys.

" This is why investors used to take advantage of low rates during recessions to invest in higher order production."

"producing" when there is no demand is idiocy.

you cannot sell more eggs by producing more... of them than what the market wants.

"The current problem is that the artificially low rates encouraged too much investment in capital that would not be needed. This time around economic weakness should not produce as much investments in mills, mines, plantations, etc., because much of the investment that would have taken place during the weakness was actually foolishly taking place during the period of high demand for lower order goods. As a result the projects suffered great cost overruns and produced overcapacity."

WTF? "weakness"?

this is not rocket science.

when people are buying LESS of something, producing MORE of it will not lead to MORE SALES.

you'll be employing people to fill up warehouses with unsold inventory and that's a recipe for bankruptcy.

"The way forward is to let the markets liquidate the bad investments so that we can start from a strong foundation."

bad "investments" are when you put money into something for which there is no demand for....

90% of all new jobs come from small businesses but 90% of all small businesses go broke also.

most of them are vying/competing for the same static market share... they're not "creating" demand.

"Let all the old mines and facilities with outdated equipment close down so that their more efficient competitors can thrive. Trying to keep everyone in business will not only destroy the weak companies but will also do great harm to the strong and efficient ones. Blowing more bubbles and sending the wrong signals about time preference will not help anyone."

that ONLY MATTERS if there is a DEMAND for the product to start with.

old mines do not close when there is still demand...for something...

they get updated or new ones built to satisfy demand.....

mines close - no matter how new or old when the demand for their product goes away.

"Let me clarify this because you seem to have forgotten my previous arguments.

"ruling class" ... do you mean govt?

"If the economy is in recession and people are not spending money but instead saving it - wouldn't that also tend to provide more money that the borrowing demand?

Not at all. When people change their savings rate they simply signal a change in time preference as was explained to you. They are postponing current consumption because they want to consume more later. But when more and more people save interest rates adjust and the savings provide a pool of capital that can be used to invest in the production of higher order goods, something that is necessary for wealth creation and greater future consumption."

so you admit the pool of available capital INCREASES and that, in turn ALSO drives down interest rates.

..independent of the govt... efforts..

"Let me guess. Given your ignorance of the issue I would say that once again you failed to take advantage of Ron's references and you have yet to read about the subject. That means that you will remain ignorant of his arguments and will keep going back to your discredited theories over and over and over again."

I read the references guy but when it starts out talking about individual economic liberty and there is not one reference to "government" - it becomes little more than an anti-govt rant that presumes/assumes that the best system - has no government.

this is LA LA Land.

even cavemen had government....

ya'll are lower on the genetic scale than cavemen..

"no, I don't need to read economics .. I just need to understand how woefully ignorant you are and how you try to hide it with bluster and bluff..and condescension..

Someone who is ignorant of the subject is in no position to judge others because he does not even know that he does not know. That is why you do need to read. And to learn. Actually, it isn't very hard. Anyone can do it. My kids recommend How an Economy Grows and Why It Crashes as a good start. "

no. a thoughtful person acknowledges that there are different philosophies of thinking about something.

an intelligent person wants to compare and contrast and understand

an ignorant person just dismisses any and everything they don't agree with

a moron insists on ideological beliefs when none exist in the real world.

"you can "produce" out your butt until the cows come home but if no one is buying what you produce - then how would you call that "production" except in the nether world you live in ?

I take it that you have yet to learn about Say's Law. you cannot sell a product because you decide to employ people to make it.

that's bass ackwards but it seems to be what you Beavis and Butthead guys love to believe.

you will grow broke investing your capital in something for which there is no demand and you cannot create demand for it by merely producing it and making it available.

the world has warehouses full of worthless goods produced on this premise.

there is opportunity to identify changing trends or products that offer better/more value than other products but that requires risk and the failure rate is very high.

innovation is critical to any economy.

but in the end - there has to be demand in the marketplace for what will be produced.

there is no gain in production by producing things for which there is no demand.

the problem you have here is reliance on theories while ignoring what happens in the real world.

theories are theories.

you know that.. you have big problems with some kinds of theories ...

but you go 180 degrees opposite on economics.

the real world is what economics is about - not what you want to believe with your dogma.

if X number of toys are sold and you produce 3X of toys to satisfy "future demand" - you'll remove yourself from the business or selling toys.

Your ignorance is showing again. You simply have no idea what is meant by consumer good versus producer good, do you? As I pointed out, when time preferences change so does the production structure. When people prefer to save rather than invest the money flows into the higher order goods. This is when the availability of cheap financing flows to mining operations and other higher order operations. Without this a recovery of demand for lower order goods could never take place because you can't build a toy, toaster, or car without the parts and raw materials used to make those parts.

bad "investments" are when you put money into something for which there is no demand for....

Falling demand requires that the inefficient producers be liquidated. That is why GM should have been allowed to go bust. And the house builders. And the inefficient US steel plants.

But you still have no idea about how things work. If I expect that demand for cars will pick up in 2016 I have to make investments in iron mines today because there is no way to meet the increased demand unless there are new facilities to send iron ore fines to the smelters. Your lack of knowledge only seems to allow you to look at the end demand for the lower order goods and you seem to see miners, millers, tool makers as you do retailers.

that ONLY MATTERS if there is a DEMAND for the product to start with.

No you idiot. What matters is that there is demand when you build the mill or mine. Some projects take nearly a decade to build. Once financing is arranged the current conditions do not matter. The only thing that does is the market at the time the facilities begin operations and the solvency of the companies that signed the long term supply contracts that made that financing possible.

When I give a mine builder $300 million to build his mine for the right to buy all of his silver byproduct at $3.90 into the future or for a 3% NSR, I do not care what the silver price is today or how much my 3% of production will fetch today. What matters is what it will be worth in 2016 when the mine opens up.

if X number of toys are sold and you produce 3X of toys to satisfy "future demand" - you'll remove yourself from the business or selling toys.

Your ignorance is showing again."

this is not me guy..this is a LOT of economists...

" You simply have no idea what is meant by consumer good versus producer good, do you? "

oh I do but you cannot "create" demand when there are no buyers for what you are "producing". there must be a demand for it....

"As I pointed out, when time preferences change so does the production structure."

not according to a lot of respected economists.

"When people prefer to save rather than invest the money flows into the higher order goods."

higher order goods... pls explain..

" This is when the availability of cheap financing flows to mining operations and other higher order operations."

producing more from mines when there is no increased demand does not work.

the mines produce what the market will use.

" Without this a recovery of demand for lower order goods could never take place because you can't build a toy, toaster, or car without the parts and raw materials used to make those parts."

this is grade A blather.

bad "investments" are when you put money into something for which there is no demand for....

"Falling demand requires that the inefficient producers be liquidated. That is why GM should have been allowed to go bust. And the house builders. And the inefficient US steel plants."

falling demand means you cut back on production... if the market only wants X cars and you are producing 2X cars - it does not necessarily mean you are not efficient.. it just means you are making more cars that the market demand supports.

"But you still have no idea about how things work. If I expect that demand for cars will pick up in 2016 I have to make investments in iron mines today because there is no way to meet the increased demand unless there are new facilities"

that's BS.... existing mines have cut back on production as demand has lessened but they can ramp back up to accommodate demand also.

we started out with more iron mining to meet the prior demand.. we had a recession.. the mines cut back, laid off... but still had plenty of iron.. just did not need to mine as much of it.

you don't know shit from shinola on this Mr. Junior Economist....

"to send iron ore fines to the smelters. Your lack of knowledge only seems to allow you to look at the end demand for the lower order goods and you seem to see miners, millers, tool makers as you do retailers. "

yadda yadda yadda...I'm amazed at your ignorance on this - while you "lecture."

do you think GM opened up NEW plants or do you think they re-opened older existing plants to meet increased demand?

that ONLY MATTERS if there is a DEMAND for the product to start with.

"No you idiot. What matters is that there is demand when you build the mill or mine."

you don't build a mine or other if there is no demand or open a new mine if demand is not increasing.

Some projects take nearly a decade to build. Once financing is arranged the current conditions do not matter.

if it is an existing product already present in the marketplace - what you do about future ANTICIPATED demand is problematical.

this is the reason right now why capital is readily available at a cheap price and there are few takers for it.

"The only thing that does is the market at the time the facilities begin operations and the solvency of the companies that signed the long term supply contracts that made that financing possible."

there's LOTS of cheap financing available.. right now.. because the economy is crap and few see future growth except in some areas.

"When I give a mine builder $300 million to build his mine for the right to buy all of his silver byproduct at $3.90 into the future or for a 3% NSR, I do not care what the silver price is today or how much my 3% of production will fetch today. What matters is what it will be worth in 2016 when the mine opens up."

he's NOT going to build a NEW mine UNTIL the production of the current mines is maxed and before that happens - they will have to recover back from where they were before the recession.

All that did was cut back on existing operations when demand fell.. they laid off some.. and reduced their extraction levels.

if the market is not demanding "more" - it makes no sense to expand production much less to ADD new production.

you're assuming that operations are inefficient ....

that may or may not be true but it's different than a already efficient operation of which demand for that product has fallen - and they cut back production in response to that reduced demand.

Yes, I mean government. I mean the individuals who make the decisions in government and those that carry them out. A 'country' does not do anything just like 'the people' do not do anything. It is individuals who are directly acting who take actions.

so you admit the pool of available capital INCREASES and that, in turn ALSO drives down interest rates.

..independent of the govt... efforts..

No. Interest rates can also go down when central banks add liquidity at a time when there is little saved capital. The investors in higher order production get fooled because they believe that there is enough capital and complete their projects only to find that they have massive cost overruns as the expected inputs are not available. This is how central banks create bubbles and drive the business cycle.

Again your ignorance of monetary and business cycle theory is showing.

I read the references guy but when it starts out talking about individual economic liberty and there is not one reference to "government" - it becomes little more than an anti-govt rant that presumes/assumes that the best system - has no government.

This is another Pinocchio moment for you. Had you actually read the references that Ron provided you would know about business cycle theory and about the fact that interest rates can go down by having central banks just print money.

no. a thoughtful person acknowledges that there are different philosophies of thinking about something.

You do not fit the description of a 'thoughtful' person. You are ignorant of most of the topic that are being discussed and are one of the most superficial people on this site because a 'thoughtful' analysis would destroy your faith based beliefs.

that's bass ackwards but it seems to be what you Beavis and Butthead guys love to believe.

I guess that your answer is no, you are not familiar with Say's Law.

you will grow broke investing your capital in something for which there is no demand and you cannot create demand for it by merely producing it and making it available.

The big money is made by investing in anticipation of demand in the future. You borrow when there is a lot of cheap savings around and invest in long cycle projects that will be in operation when demand is sufficient to offer an excellent return on that investment. If you are a competent entrepreneur, which is not something that I expect you to understand, you will make very large returns and get very rich.

You seem to suggest the opposite. Borrow and invest when the economy is hot and demand is near a peak. But how do you survive when the project takes time and the cycle begins to turn against you?

the world has warehouses full of worthless goods produced on this premise.

Yes it does. As I said, a lot of people mistook low interest rates for savings and capital availability. They built plants to make things in anticipation of a change in time preference on the part of consumers. But there wasn't any change just as there weren't any savings. This is why the individuals who made the errors need to be allowed to fail and their assets need to be liquidated. All the people who are working making things that consumers can't afford or do not want need to be out of jobs and become available to businesses that are viable.

For the record, given your ignorance I do not expect you to understand what I wrote above. What I expect is another shallow response from a person who mistakes the economy as being totally represented by the retail sector.

Yes, it is 'guy.' It is the Keynesians. You know, the guys who kept asking for money and credit injections that would lead to lower and lower rates but somehow could not figure out that such activities would lead to malinvesments and huge bubbles that have to come to bad ends. These are the idiots who kept talking about the need to stimulate consumption at a time when consumption was at an all time high and savings were at a record low. They were the idiots who did not see the NASDAQ and housing bubbles and who were calling for $25 oil and $250 gold as far as the eye could see.

Well, like you, they are also ignorant of their master's shortcomings. I suggest that you actually read this time. I suggest that you look at the statement, "Keynes did not succeed in refuting Say's Law of Markets. His attempted refutation consisted merely in ignoring the qualifications..."

oh I do but you cannot "create" demand when there are no buyers for what you are "producing". there must be a demand for it....

That is correct dumdum. But that is not what Say argues or I am talking about. As I pointed out when my company spends $5 billion over five years to build a huge mine to provide upgraded oil sands bitumen to the markets it does not create demand for its bitumen. But the money it pays to construction workers, welders, inspectors, vendors, etc., is spent by the recipients for items that they want. In the real economy there is never the possibility of an aggregate oversupply. The trick is to let the markets work so that investment can flow in the areas where there is demand. But that is where the economists that you follow screw things up. The advise governments and central bankers to meddle and to keep sending false signals by lowering rates and encourage overproduction.

When it comes to the Keynes cult I think that Gary North may have put it best when he described it as a 'false giant surrounded by real pygmies.'

higher order goods... pls explain..

So contrary to your claims you never read any of the references cited. The order has to do with the causal connections between goods and the structure of production. The lowest order good is the consumer item that you buy. Let us say some company puts out a bubblegum flavoured frozen pizza. That product is the first order good. It is what the consumer buys and where it is easiest for the producer to guess wrong and oversupply a market.

Let us say that consumers have bought as much bubblegum flavoured frozen pizza as they wanted. Any addition supply will cause a problem and you will have a glut on the market. But this does not mean that there is a glut for the whole wheat flour that goes into making the first order good that the consumer buys. In this case the whole wheat flour is a second order good not being purchased directly by the consumer but by the producers of the goods that consumers buy. It is supplied by mills that convert wheat into whole wheat flour. And the fact that there is a glut in the market for bubblegum flavoured frozen pizza does not mean that there is a glut for whole wheat flour. But suppose that there is a glut because there are too many mills grinding away and producing whole wheat flour. This does not mean that there is a glut of all types of flour. Or even if there was that there was a glut of wheat, which is the third order good.

The point is that the structure of production matters. That is what the 'respected' Keynesians that you worship do not deal with very well. This is why they fail miserably when it comes to entrepreneurship and why the Austrian School, which is built on the idea of the importance of entrepreneurship is far more capable of understanding what is going on and predict what is likely to happen. In a free market profit and loss depend on the forecasters' ability to anticipate demand, and implement plans to meet that demand at a total cost that is below the sales price. (This is why I keep pounding Mark on his shale gas hype. The suppliers cannot sustainably meet demand because their cost is well below the market price.)

All this matters and unless you take the time to read and figure out what is going on you will drown in the sea of Keynesian ignorance.

But there was demand. Iron may not have been needed to build cars in North America but it was needed to build rail lines, power plants, bridges, and cars in Asia. Great fortunes have been made in iron, coal, and nickel over the past decade. In fact there was more made in basic commodity production than in the stock or bond markets.

This is your problem. You have a very superficial view of the economy and your ignorance of basic economic principles does not allow you to see much below the surface. As I pointed out, the big problem has been meddling that has sent too many false signals to forecasters and has helped them make errors that have led to some serious malinvestments that will need to be liquidated. The problem is that the 'respected' economists who you keep citing are telling central banks and governments to keep making the same errors so that the necessary liquidations do not take place.

Vangel" " Without this a recovery of demand for lower order goods could never take place because you can't build a toy, toaster, or car without the parts and raw materials used to make those parts."

Lrry: this is grade A blather.

If you need me to explain the meaning of the terms how can you possibly draw a conclusion? You just admitted that you had no clue about what higher or lower order goods meant and that you have not really thought about the structure of production. You did not understand what the Keynesian argument against say depends on. You need to know all those in order to make an intelligent argument against the points I make.

you don't build a mine or other if there is no demand or open a new mine if demand is not increasing.

First, it often takes about a decade between finding a mineral deposit and building the mine. That means that the current demand is not very important.

Second, if we take your argument to its logical conclusion we would have to conclude that Steve Jobs never should have created the iMac, iPod, or iPad since there was not a demand for those products before he decided that Apple should make them. Clearly there was no consumer demand for personal computers when Jobs and Woz put one together in their garage. Clearly there was no need for the iPod before it was created.

if it is an existing product already present in the marketplace - what you do about future ANTICIPATED demand is problematical.

this is the reason right now why capital is readily available at a cheap price and there are few takers for it.

Fiat money is not capital dumdum. That is the point that you keep missing. The low interest rates do not signal an excess in capital available for investment. They are created by loose money policies of central banks and the monetization of government debt. This is why the resource companies can't get tires for their trucks, drilling equipment, specialty tools, etc. It is why the tar sands operators can't find enough welders and pipe fitters. Why the shale drillers can't find enough people and why there is a huge shortage of geologists. The low interest rates fooled many of these companies into approving projects that they believed could be built because there was sufficient capital available. There wasn't. And now many of them will have huge cost overruns that may drive them into bankruptcy.

there's LOTS of cheap financing available.. right now.. because the economy is crap and few see future growth except in some areas.

When money can be created out of thin air there is lots of it available. But that is not savings or capital. If there are shortages of compressors that are expected to cost $200K the fact that the company could borrow $200K at a low rate does not help. It needs the compressor, not the money.

he's NOT going to build a NEW mine UNTIL the production of the current mines is maxed and before that happens - they will have to recover back from where they were before the recession.

Thank you for showing your ignorance yet again. You have just claimed that what happens all the time does not happen. People who make money do not wait until everyone knows that there are shortages. They forecast demand and make sure that they are ready to deliver at a cost that is below the expected market price. The smart money gets nervous when prices are high and there is a lot of capacity around, not when prices are low and marginal production has to come off-line.

All that did was cut back on existing operations when demand fell.. they laid off some.. and reduced their extraction levels.

This is your usual ignorance showing up again. Iron and copper production has not really fallen over the past five years because there has been a great deal of building activity all over the developed world that you seem to have missed. All those new city blocks, rail lines, airports, train stations, deep sea ports, bridges, etc., take a lot of material to build. The fact that the developed world slowed did not have much impact on demand other than to reduce the percentage increase.

In the case of commodities we saw an investment boom because there was not much investment for nearly two decades. Many of those great open pit mines are not economic and their output will no longer go to the market once prices correct for a while. Many of the marginal hard rock mines will have to close. That would take huge chunks of supply from the market, which is why even if there is a fall in demand we need investment in capacity that will come on line some time in the next three or four years.

As I have written above, time preference is important to capital formation and wealth generation. Your arguments show that you have a higher time preference and not very capable of plans that take long to develop. But that should not stop you from understanding the usually more successful people who are quite capable of delaying gratification and planning further ahead.

Can you at least try to learn something before you post on an issue that you do not understand?

yadda yadda yadda...I'm amazed at your ignorance on this - while you "lecture."

do you think GM opened up NEW plants or do you think they re-opened older existing plants to meet increased demand?

GM is a flawed company that I have little interest in. And from what I can see NA demand is still lower than it was five years ago. Which is why GM is building so many factories in China instead of the US. And the last time I was there I could see that the Chinese were using steel when they built those new factories.

Yes, I mean government. I mean the individuals who make the decisions in government and those that carry them out. A 'country' does not do anything just like 'the people' do not do anything. It is individuals who are directly acting who take actions."

do you have a realistic alternative?

"so you admit the pool of available capital INCREASES and that, in turn ALSO drives down interest rates.

..independent of the govt... efforts..

No. Interest rates can also go down when central banks add liquidity at a time when there is little saved capital. The investors in higher order production get fooled because they believe that there is enough capital and complete their projects only to find that they have massive cost overruns as the expected inputs are not available. This is how central banks create bubbles and drive the business cycle."

interest rates CAN ALSO go down during a recession even without central banks.

can you name a modern industrialized country that does not have a central bank?

Can you name a country at all that does not operate with a central bank and as a result is a better country?

Again your ignorance of monetary and business cycle theory is showing.

oh please.... you're "knowledge" is laughable..

"I read the references guy but when it starts out talking about individual economic liberty and there is not one reference to "government" - it becomes little more than an anti-govt rant that presumes/assumes that the best system - has no government.

This is another Pinocchio moment for you. Had you actually read the references that Ron provided you would know about business cycle theory and about the fact that interest rates can go down by having central banks just print money."

I read about "Natural Law' and not one word about govt...

"no. a thoughtful person acknowledges that there are different philosophies of thinking about something.

You do not fit the description of a 'thoughtful' person. You are ignorant of most of the topic that are being discussed and are one of the most superficial people on this site because a 'thoughtful' analysis would destroy your faith based beliefs."

maybe in your book but I do not describe the world in terms of massive global conspiracies.

" that's bass ackwards but it seems to be what you Beavis and Butthead guys love to believe.

I guess that your answer is no, you are not familiar with Say's Law."

it's like much of the stuff you believe. It's not universally-accepted. It's disputed.

"you will grow broke investing your capital in something for which there is no demand and you cannot create demand for it by merely producing it and making it available.

The big money is made by investing in anticipation of demand in the future. You borrow when there is a lot of cheap savings around and invest in long cycle projects that will be in operation when demand is sufficient to offer an excellent return on that investment. If you are a competent entrepreneur, which is not something that I expect you to understand, you will make very large returns and get very rich."

you need to differentiate between supplying existing products verses innovation.

When Toyota sells less cars in a recession, it's NOT because Toyota is inefficient and should be allowed to "liquidate".

A "competent" entrepreneur is very, very leery in spending capital in uncertain economic times when unemployment is high and demand is down.

"You seem to suggest the opposite. Borrow and invest when the economy is hot and demand is near a peak. But how do you survive when the project takes time and the cycle begins to turn against you? "

no I don't. I say that investing during recessions or worse expanding supply when demand is down is not going to increase sales. You're just going to end up with excess inventory.

this is why good companies like Toyota ramp their production BACK when sales are down.

"the world has warehouses full of worthless goods produced on this premise.

Yes it does. As I said, a lot of people mistook low interest rates for savings and capital availability. They built plants to make things in anticipation of a change in time preference on the part of consumers. But there wasn't any change just as there weren't any savings. This is why the individuals who made the errors need to be allowed to fail and their assets need to be liquidated. All the people who are working making things that consumers can't afford or do not want need to be out of jobs and become available to businesses that are viable."

again, check good companies who reduce production because demand has decreased.

"For the record, given your ignorance I do not expect you to understand what I wrote above. What I expect is another shallow response from a person who mistakes the economy as being totally represented by the retail sector."

Name the countries whose policies are not this and agree with your view.

"Well, like you, they are also ignorant of their master's shortcomings. I suggest that you actually read this time. I suggest that you look at the statement, "Keynes did not succeed in refuting Say's Law of Markets. His attempted refutation consisted merely in ignoring the qualifications..."

you know more than a world full of highly educated economists?

what a fool you are.

"oh I do but you cannot "create" demand when there are no buyers for what you are "producing". there must be a demand for it....

That is correct dumdum. But that is not what Say argues or I am talking about. As I pointed out when my company spends $5 billion over five years to build a huge mine to provide upgraded oil sands bitumen to the markets it does not create demand for its bitumen."

it's going after existing demand but if existing demand is down then trying to expand and go after reduced demand is risky business.

" But the money it pays to construction workers, welders, inspectors, vendors, etc., is spent by the recipients for items that they want. In the real economy there is never the possibility of an aggregate oversupply."

never, for any commodity?

how come Ford cuts back the number of cars it produces and lays off people, cut back production, when demand slows?

"The trick is to let the markets work so that investment can flow in the areas where there is demand. But that is where the economists that you follow screw things up. The advise governments and central bankers to meddle and to keep sending false signals by lowering rates and encourage overproduction."

if you look at the CURRENT Economy - demand for things is DOWN....

there are pockets of innovation.. new products... but most that is expanding are things that replace other things at less cost.

the economy itself is not expanding at a healthy rate.. it's stumbling.

"When it comes to the Keynes cult I think that Gary North may have put it best when he described it as a 'false giant surrounded by real pygmies.' "

that's just ignorant. if the field was discredited no one would subscribe to it least of all governments.

"higher order goods... pls explain..

So contrary to your claims you never read any of the references cited. The order has to do with the causal connections between goods and the structure of production. The lowest order good is the consumer item that you buy. Let us say some company puts out a bubblegum flavoured frozen pizza. That product is the first order good. It is what the consumer buys and where it is easiest for the producer to guess wrong and oversupply a market."

I want to know YOUR version.

I asking for YOUR view here.

"Let us say that consumers have bought as much bubblegum flavoured frozen pizza as they wanted. Any addition supply will cause a problem and you will have a glut on the market. But this does not mean that there is a glut for the whole wheat flour that goes into making the first order good that the consumer buys."

huh? where would the excess go unless some other product was introduced in HOPES of taking away businesses from some other product?

you're not "creating" demand here.

you're fight to get a part of the existing demand.

"In this case the whole wheat flour is a second order good not being purchased directly by the consumer but by the producers of the goods that consumers buy. It is supplied by mills that convert wheat into whole wheat flour."

I can assure you that they will cut back production if there is no demand for the product.

"And the fact that there is a glut in the market for bubblegum flavoured frozen pizza does not mean that there is a glut for whole wheat flour. But suppose that there is a glut because there are too many mills grinding away and producing whole wheat flour. This does not mean that there is a glut of all types of flour. Or even if there was that there was a glut of wheat, which is the third order good."

this is blather.

The point is that the structure of production matters. All this matters and unless you take the time to read and figure out what is going on you will drown in the sea of Keynesian ignorance.

you're handwaving here...

you cannot create demand - no matter how many theories you believe in.

when demand reduces for a product - you cut production and lay off people unless you can find another market (which will displace some other product).

Ford does not produce an overabundance of cars in hopes that in doing that they'll generate more demand.

" This is your problem. You have a very superficial view of the economy and your ignorance of basic economic principles does not allow you to see much below the surface."

I'm looking at the realities guy.

look at the economy and the number of businesses and supplies that have cut back on production.

we're going around in circles here.

you're form the same school that believes if we cut taxes we increase revenues - in theory - but in reality the theory is crap.

which is ironic for you as a skeptic of GW "theory" ...

your response to things that don't work according to your dogma but there is a world of other people that believe is that they are "lying", all of them are "ignorant' and/or they are colluding in a grand global conspiracy.

and I'm supposed to believe you. and benefit from your "superior" knowledge and intellect...